Situation: A CEO is evaluating an acquisition which could significantly contribute to his company’s financial position. Patented technology may add value to the deal. The founders of the acquisition target are willing to work part-time to facilitate the transition of their technology to the acquirer. How do you evaluate an acquisition?
Advice from the CEOs:
Set a timetable to close the deal or walk.
Two key factors in the due diligence process will be strength of the intellectual property and cost of the acquisition long term.
Another key factor to evaluation will be how this opportunity fits into the company’s larger financing plan. Currently the company is undertaking a financing round. How much will this acquisition contribute to or distract from the financing round?
If this is a primarily a value-add opportunity, will it add to the larger financing round?
Can the larger financing round be completed on time while pursuing this opportunity?
An option is to negotiate a white label agreement – an agreement that will keep the company in the game while completing the larger round.
If the founders are not amenable to a delay, what is the cost in terms of funds and effort versus the larger round.
The technology appears interesting, but the timing is bad given your need for the larger financing round. Here’s an option.
Go to the founders and start the discussion. Secure a license or hire their programmer. Let the technology go dark until the financing round is completed.
There is value here – but do this as a side focus if it’s not too expensive. Assure that the deal includes both rights and the underlying algorithms.
Delegate this to someone else in the organization. The CEO’s focus is the larger financing round.
A company is in discussions with a competitor about a possible merger. The CEO seeks
advice both about how to proceed with these discussions, and how to communicate
the possible merger to staff. How do you merge with a competitor?
from the CEOs:
Until there is a signed binding legal contract everything must be business as usual.
Maintaining this attitude provides more leverage as the negotiation proceeds because the company is prepared for either situation.
If there is a differential in pricing between the company and the competitor, write short term contracts with customers that the company takes from the competitor. This creates the opportunity to revise the contracts and pricing if the merger is completed.
This issue begs the question – why do a deal now versus in 1-2 years? If current strategies are increasing the size of the company relative to the competitor, in another 1-2 years the company will be worth more compared to the competitor and will be in a position to complete a deal on more favorable terms.
At this point, most staff are unaware of the discussions. How is it best to proceed?
Consult an HR expert on when to start communicating, what to communicate and how to phrase the message.
The trigger to initiate top level staff communications will be the signing of a due diligence agreement.
The message to senior management: there is interest but no binding agreement, here’s the deal that’s being discussed. Then just listen to what they have to say.
Communications to staff create an important management challenge. Staff will be concerned about their futures and will want to have assurances that these are secure.
Situation: The CEO of a family business is anticipating retirement in the next two years. Currently, there is no succession plan. Other family members do not seem interested in running the company. What steps should the CEO be taking? How do you plan for retirement?
Advice from the CEOs:
To set the stage for your successor, make sure that you are being paid adequately for your job. If you are being paid less than some of your key employees, nobody else will want your job. Raise your salary to a point where it is appropriate for a CEO, and so it is attractive enough to entice a qualified successor. This will also help attract a buyer should you decide to sell or merge the business. Raising your salary will also help your bottom line if your company is an S Corporation.
Once you identify a potential successor, bring this individual into the business as soon as possible so they have an opportunity to understand the business fully and can receive on-the-job training from you.
Understand the numbers and red flags that give you the information and authority to run the company and the respect of your employees. Teach these to your successor so that this person has the same overview of the company that you command.
Look at what skills your successor needs to be CEO and start mentoring that person on those as soon as possible.
You may need to delay your planned retirement so that you have time to select a successor and prepare that individual to take on your responsibilities. Your current 2-year plan may not work, at least without compromises.
Without a management succession plan, the company may not bring in as much in a sale or merger as you expect. It is important that you improve the numbers to maximize the value of the firm if you choose to sell or merge the business.
Look at your current range of projects. Focus on those which are most profitable to you and emphasize these. You may be able to reduce staff and expenses by being more focused.
Situation: An early stage company is positioning itself for growth. The CEO believes that they need to adopt a new model to grow. She is focused on a new channel – an affiliate model using the web. How do you build a young company?
Advice from the CEOs:
Introducing a new product to a new market is very difficult, especially for an early stage business that is still establishing itself. Shifting from direct sales to ancillary services presents a new challenge and a new demographic. In addition, in your market there are low barriers to entry so it may be too early to diversify. You are more likely to be successful marketing to your core.
Evaluate and decide whether there is growth in your core business. If so, stick with your core plan. If not, then you either must change or decide that your core market is not what you thought it would be.
You offer a valuable, important service. The issue is branding and a clear vision of what you want to be. Start by identifying your revenue stream. Then assess ways that you can move from one-time sales to an annuity revenue stream without major adjustments to your model.
Is it feasible to build a revenue share model for ancillary services with your core business partners? Here are the steps:
Develop a model.
Talk to both your business partners and customers – test the concept. See how they respond.
There are two things to look for: does it turn out that that the model is easy to sell and implement, with little effort or distraction from our core business, or does it compliment your core business. If either or both is the case, you may want to pursue it.
Situation: A CEO feels overworked, fatigued and ready to retire! The core problem is a long-term employee who is constantly resisting the CEO’s the company’s strategic direction. How can the CEO alleviate this situation? How do you work with a resistant employee?
Advice from the CEOs:
If this individual is valuable, try to work with him first.
Can you give him a different focus – another role within the company for which his talents are suited and where he will make a significant contribution?
For a change like this to be effective it must be offered and accepted with the condition that this becomes his focus and not your strategic leadership of the company.
How is it best to have this conversation?
First, clearly state the direction of the company.
Then ask a question: What do you want to be doing for the next 5 years?
You may be surprised by the response to the question. It may lead you to a win-win solution; or it may become clear that this individual needs to be doing something else.
Conduct the discussion in two stages – but without a lot of time between these two discussions.
“You are valuable but things have to change. I prefer that you remain as part of the team, but on the strategic front you have a choice – are you on board or not?”
If after consideration the answer is that he is not on-board then you must let him go.
Don’t blindside this person. Think of a Resurrection versus a Come to Jesus Meeting.
If it turns out that you must get rid of this person you will wonder: why you didn’t do this 6 months ago.
Situation: A company has customers scattered around world. When the company was small, the CEO was very involved at all levels of sales and customer relations. Now that the company is larger, the CEO is more strategic but misses client contact, particularly for gathering market intelligence and understanding. The CEO does go on regular sales calls with reps but is getting push-back from the Sales VP. What is the CEO’s role in sales?
Advice from the CEOs:
Make an effort to understand the push-back coming from the Sales VP. Probe – where is the resistance coming from? What is the basis of the resistance? Is it personal or functional? Keep probing until the roots of resistance are clear, and then deal with these.
As CEO, insist on continuing customer contact. This is essential to your role and your understanding of your market.
Sit down and discuss this with the Executive Team. Go over your travel schedule and your objective in meeting with customers. Where appropriate meeting opportunities exist, let them know that you want to be included. Follow-up and repeat the message if they do not schedule you for calls.
How does the sales rep position this with a client? Let the customer know that the CEO will be visiting the area and would like to meet you. Here are the broad objectives and the benefit to you. Knowing that the CEO is interested in meeting with the client can be a powerful way to deepen the relationship with the client.
Having the CEO accompany the local representative on the first meeting with a customer sends the wrong message. Let the representative establish the relationship first. Then bring in the CEO to deepen and strengthen the relationship when the opportunity is right.
Situation: A company is actively marketing to prospective clients and also engages in networking. They want to assure that they are up to speed with current trends in marketing. What are best practices for following up on marketing or networking contacts? How do you best leverage networking?
Advice from the CEOs:
Timing is everything. A prospective client may or may not have an immediate need for your product or service, but may develop a need in the future. Assure that you have a program that provides ongoing follow up via:
Regular personal follow up
Initial follow up should be rapid. Ask for permission to follow-up and set the time frame when you meet a new prospective client. Ask how the prospect prefers for you to stay in touch. Do they prefer newsletters follow-up via social media, or personal follow-up?
Draft letter, email and social media communication templates ahead of time so that rapid follow-up is easy.
Use an electronic or print newsletter to stay in touch with prospects. Social media have become an increasingly important way to stay in touch with networking contacts.
Basic newsletters are usually 2-3 pages, or a one pager with links to see full articles.
Look at contact management software: for example Salesforce.com or ACT.
Basic sales and marketing subscriptions from Salesforce.com start at $25/user/mo. for up to 5 users, or $65/user/mo. for a complete customer relations management (CRM) system.
Quality of collateral is important. It is a face of your company. High quality collateral should have a consistent look and feel, and should remind the prospect why they were interested in you and your company in the first place.
Situation: A company hired an experienced individual to sell for them as a consultant. The individual initially asked to be paid on an hourly basis. Results have come with surprising speed. Now the consultant is asking for a commission on sales. How much should you pay a salesperson?
Advice from the CEOs:
Tailor the commission structure to company objectives. For example, if the objective is to reward new business development, and to retain the individual, try something like:
Offer 10% commission on Year 1 sales.
If both the customer and the consultant are still with the company in Year 3, the consultant gets a 5% bonus on Year 2 and 3 sales.
Repeat this for successive years.
If the interest is a long-term relationship, determine the nature of the sales services where the consultant excels.
What is the individual’s focus?
Have a highly qualified sales expert do a telephone interview of the consultant and offer their assessment of the individual’s talents.
One successful sales model includes one measure to retain the job, and another to calculate commissions:
Set a dollar quota for sales performance – if the individual does not hit at least 85% of quota, they lose their job.
However, calculate commissions based on the gross profit that their sales generate.
This properly balances the focus between revenue and gross profit generation. To succeed, the individual must pay attention to both measures.
If the individual wants a substantial commission, then don’t pay a substantial base. Instead pay a draw against commissions to allow them to support themselves between sales.
Pay on receipt of payment, not on receipt of orders.
Situation: A company has experienced delays in closing their annual books for years. Inability to complete final inventory is the critical factor. In recent years it has taken four months or more to get final numbers for the year. How do you close the books on time?
Advice from the CEOs:
It is important to put a system into place well in advance of fiscal year end. A key part of this is to conduct final inventory so that it is done smoothly and accurately either immediately prior to or following the end of the fiscal year. Retail or wholesale operations normally complete final inventory within 30 days of fiscal year end.
If your inventory includes both large and small value items, ask whether you have to count everything. Based on past inventory it may be that small items that do not substantially impact final inventory can either be eliminated from the count or handled on an exception basis.
Consider a system of doing monthly or rotating monthly inventory smaller sets of items that make up perhaps 60% of sales, and quarterly inventory on an additional larger set of items that together with the first groups make up perhaps 80% of sales. By completing inventory of these items more frequently, the company will not only have a better handle on total inventory, but is also likely to be more accurate at the end of the year. At year-end inventory add those items that make up the final 20% of sales to the inventory count.
Again, depending upon the nature of the inventory, it may not be necessary to count items that, as groups, are valued under $500 per group. Seek expert advice from your accountant on this point.
Situation: A CEO wants to build a new bonus program for the company’s professional services team. He wants to include a customer satisfaction component, because the group is historically weak in this area. Does it make sense to have a different bonus plan for professional services personnel and managers than for product development personnel and managers? Can bonus plans differ between departments?
Advice from the CEOs:
Many companies have different bonus structures for different departments. This is natural because different departments have different functions. For example, Sales may evaluated for bonuses based on a combination of revenue and gross margin achievement, while Finance is evaluated on profitability and Product Development is evaluated on hitting product launch schedules and new product sales.
Changing bonus structures can be a sensitive matter. If the team impacted is not included in the process of drafting the new plan, changes may be perceived as negative. If this is the case, it’s better to frame the new program so that you limit your commitment to it to just one year, and let the team know that this may change this next year.
How do you go about including customer satisfaction surveys as a component of bonus calculation?
If you want to use customer satisfaction as part of the plan, benchmark customer service satisfaction before you launch the plan. If you don’t benchmark, how do you know whether performance improves?
Survey response rates will be an issue – you won’t get 100% and may get a survey response rate of 10% or worse. Be prepared for this and make sure that data with a low response rate will support your objectives.
A survey is a lagging metric. If you can find a measurable leading metric to use as well this is better.
Be careful of how the survey is drafted and who conducts it. Both can bias results.
As an alternative to making customer satisfaction part of a bonus plan, consider starting a customer satisfaction or loyalty program. The most important question to ask will be: would you recommend us to your peers? Any low response guarantees a follow-up call from the company.